Oil prices surge after Saudi-led air strikes in Yemen

LONDON — Crude oil prices soared nearly 6 per cent to just shy of US$60 a barrel yesterday, after Saudi Arabia and its Persian Gulf allies conducted air strikes in Yemen, which sits on a key shipping passage through which some of the region’s oil exports flow.

The bombing campaign against Iran-backed Houthi rebels, who have driven Yemeni President Abdurabuh Mansur Hadi from the capital Sanaa, is stoking concerns over the security of Middle East oil shipments if the conflict widens. To export to Europe, Arab producers have to ship oil past Yemen’s coastlines via the Gulf of Aden to get to the Suez Canal.

“Geopolitical risk like this has been on the back burner for a while because we have been focusing on global oversupply,” said Mr Ole Hansen, head of commodity strategy at Saxo Bank.

The price of Brent crude, the main benchmark for international oil prices, rose to a high of US$59.78 a barrel before dipping back to US$58.93 in mid-afternoon London trade, still up US$2.47, or 4.4 per cent. Benchmark United States crude rose 6.6 per cent to a high of US$52.48 a barrel before retreating to US$51.07, up 3.8 per cent from the previous close.

Yemen has emerged as the latest battleground for Saudi Arabia and Iran in their tussle for regional supremacy. Saudi Arabia, the world’s top oil exporter, has accused Shia Iran of fomenting unrest in country. The two powers have already clashed over Syria and Bahrain, though both are fighting Islamic State extremists in Syria and Iraq.

“The battle over Yemen is to restore legitimacy and to prevent the Iranians from having a foothold. It is a strategic issue here. It is far more important than the issue of Syria,” said Mr Mustafa Alani, an analyst at the Gulf Research Center in Geneva.

Egypt, Pakistan, Morocco, Jordan and Sudan are also part of the operation in Yemen, Al Arabiya TV reported, bringing the total number of aircraft involved to 185.

“(The Gulf states are) effectively declaring war on Yemeni rebels. This has heightened uncertainty and we should expect acute volatility in the regional markets,” said Mr Ramez Merhi, a Dubai-based director for asset management at Al Masah Capital.

As the bombs fell, Yemen shut its major seaports yesterday, while Egyptian naval vessels raced to the Gulf of Aden to secure the shipping routes, maritime sources said. The Iranian government demanded an immediate halt to Saudi-led military operations in Yemen and said Tehran would make all necessary efforts to control the crisis there, Iranian news agencies reported.

Despite the sharp gains in oil prices, analysts said the long-term fundamentals remained weak.

“This news has not made the oversupply go away. The upside potential is limited unless something escalates. We need to see how this unfolds over the next couple of days,” Mr Hansen said.

The region is also heavily populated with Western military forces: The North Atlantic Treaty Organization’s (NATO) anti-piracy fleet operates from the Gulf of Aden, while the US and France operate large military bases in Djibouti. This makes it unlikely that there will be any serious disruption to supply lines as a result of the warfare in Yemen. AGENCIES